Estimating Efficient Price from High-Frequency Order Flow

Summary

The document addresses the ambiguity of asset prices at ultra-high frequency, where last trade, best bid, and midpoint can differ. This matters in practice because trading strategies need a consistent price reference.

It proposes an efficient price notion intended to be useful for market participants and outlines a statistical method for estimating it from order flow, using a Brownian Cox process approach. The excerpt does not describe the estimator’s equations, assumptions, data, or validation results, so its practical accuracy and suitability across markets cannot be assessed from this description alone.

Key ideas

• High-frequency markets offer several competing definitions of an asset’s price.
• The document proposes an efficient price concept for use in trading decisions.
• It outlines a statistical procedure that estimates this price from order flow.
• The excerpt gives no estimator details or empirical evidence with which to assess performance.

Tags

# Estimating the efficient price from the order flow: a Brownian Cox process approach


# Estimating the efficient price from the order flow: a Brownian Cox process approach









At the ultra high frequency level, the notion of price of an asset is very ambiguous. Indeed, many different prices can be defined (last traded price, best bid price, mid price,...). Thus, in practice, market participants face the problem of choosing a price when implementing their strategies. In this work, we propose a notion of efficient price which seems relevant in practice. Furthermore, we provide a statistical methodology enabling to estimate this price form the order flow.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.